S&P 500 News: After Powell, PCE, Nonfarm Payrolls, Lululemon earnings beckon

The S&P 500 opened higher on Monday to start the week as investors look forward to a week of economic data prints and earnings while they put the Jackson Hole speech from Federal Reserve Chair Jerome Powell behind them. In an attempt to backstop their equity markets, the Chinese central government has cut in half the stamp duty required for stock trading on the mainland. Chinese stocks traded in the US have all swung higher on the news.

Equities initially went south on Friday during Powell’s speech, but the S&P 500 closed up 0.67% on the day and 0.82% on the week. This week traders will see if they can capitalize on last week’s end to August’s severe sell-off. The index lost 2.27%, 0.31% and 2.11% in the first three weeks of August, respectively.

The market is mostly waiting on Thursday’s Personal Consumption Expenditures data for July and Friday’s Nonfarm Payrolls report for August. Both will have major ramifications for the index as lower inflation and new hiring would please the market in that it would make it less likely 

The S&P 500 opened the week up 0.5% in conjunction with the Dow Jones Industrial Average, while the NASDAQ Composite gained 0.75% initially.

S&P 500 News: PCE, Nonfarm Payrolls ring in September

It is uncanny that the market is advancing on Monday morning now that expectations for another rate rise in November have now taken the majority. Belief in a higher terminal rate should have a negative effect on the index, since it would increase the cost of capital and reduce valuation multiples.

CME Group’s FedWatch Tool tells us there is now a 57% chance that the Fed will raise rates at the November meeting despite the figure being 33% just a month ago. although the market still largely thinks the September meeting will witness a pause. This splits off into a 48% chance that the central bank will hike by 25 basis points and a 9% chance of a 50 basis point hike.

In comes the Nonfarm Payrolls data for August and the Personal Consumption Expenditures (PCE) data for July to provide the market with more insight into the Fed’s thinking. Last Friday, Powell reiterated that he was still open to more rate hikes but that the central bank under his leadership had already shown broad success. 

On Thursday, the US Bureau of Economic Analysis will unveil its PCE reading for July. This is the Fed’s preferred gauge of inflation, so it has more predictive power for the market. Wall Street expects 0.2% core growth in the price index compared with June and 4.2% on an annualized basis. That annual figure is slightly higher than June’s 4.1%.

Salesforce, LuluLemon and other major tech companies report quarterly results

Monday is free of important S&P 500 companies reporting, but later in the week, a slew of them emerge. The most significant may be Wall Street favorite Lululemon Athletica (LULU) – who is expected to report $2.54 per share on $2.17 billion in sales. About two-thirds of analysts have revised earnings expectations higher for the quarter.

Customer relationship management kingpin Salesforce (CRM) reports on Wednesday alongside security juggernaut CrowdStrike (CRWD). Wall Street expects Salesforce to report $1.90 in adjusted earnings per share (EPS) on revenue of $8.53 billion. Crowdstrike is expected to report $0.56 in adjusted EPS on revenue of $724.5 million.

On Thursday, the $350 billion behemoth, Broadcom (AVGO), is expected to earn $10.43 in adjusted EPS on $8.86 billion in revenue. Most analysts have revised profits higher in the last few months.

S&P 500 FAQs

What is the S&P 500?

The S&P 500 is a widely followed stock price index which measures the performance of 500 publicly owned companies, and is seen as a broad measure of the US stock market. Each company’s influence on the computation of the index is weighted based on market capitalization. This is calculated by multiplying the number of publicly traded shares of the company by the share price. The S&P 500 index has achieved impressive returns – $1.00 invested in 1970 would have yielded a return of almost $192.00 in 2022. The average annual return since its inception in 1957 has been 11.9%.

How are companies chosen to be included in the S&P 500?

Companies are selected by committee, unlike some other indexes where they are included based on set rules. Still, they must meet certain eligibility criteria, the most important of which is market capitalization, which must be greater than or equal to $12.7 billion. Other criteria include liquidity, domicile, public float, sector, financial viability, length of time publicly traded, and representation of the industries in the economy of the United States. The nine largest companies in the index account for 27.8% of the market capitalization of the index.

How can I trade the S&P 500?

There are a number of ways to trade the S&P 500. Most retail brokers and spread betting platforms allow traders to use Contracts for Difference (CFD) to place bets on the direction of the price. In addition, that can buy into Index, Mutual and Exchange Traded Funds (ETF) that track the price of the S&P 500. The most liquid of the ETFs is State Street Corporation’s SPY. The Chicago Mercantile Exchange (CME) offers futures contracts in the index and the Chicago Board of Options (CMOE) offers options as well as ETFs, inverse ETFs and leveraged ETFs.

What factors drive the S&P 500?

Many different factors drive the S&P 500 but mainly it is the aggregate performance of the component companies revealed in their quarterly and annual company earnings reports. US and global macroeconomic data also contributes as it impacts on investor sentiment, which if positive drives gains. The level of interest rates, set by the Federal Reserve (Fed), also influences the S&P 500 as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.

Earnings of the week

Tuesday, August 29 - NIO (NIO), Best Buy (BBY), JM Smucker (SJM), Bank of Montreal (BMO), HP (HPQ)

Wednesday, August 30 - Salesforce (CRM), CrowdStrike (CRWD), Brown-Forman (BF.A)

Thursday, August 31 - Campbell Soup (CPB), Broadcom (AVGO), UBS Group (UBS), VMware (VMW), Dell Technologies (DELL), Lululemon (LULU)

What they said about the market – Michael Darda

Chief economist Michael Darda of Roth MKM has taken note of the high yields at the front of the Treasury curve. Darda warned last week that short-term Treasury yields had given the S&P 500 a negative equity risk premium – something that has not happened in about 20 years.

"With Treasury bill yields now pushing about 5.5%, we now have a negative equity risk premium on the S&P 500 if we use the rates on risk-free cash assets as a discount rate, something that has not been seen since the early 2000s. [...] When this has been the case, major equity market corrections have ensued and short rates have come down."

S&P 500 forecast

The S&P 500 found support back on August 18 at 4,335, and so far, that is the lowest the index has moved during August’s setback. Only a break of 4,325 or 4,300 will worry traders. If either support level breaks expect a swift move back to the top end of the 4,100 to 4,200 former supply zone. 

The S&P 500 index remains in a short-term downtrend as the 9-day moving average is trending below its 21-day counterpart. A break above the 21-day average will see day traders pounce and send the index back toward 4,500.

S&P 500 daily chart